Side effect of mental-health cuts: Job losses

by Mary K. Reinhart - Sept. 23, 2011 12:00 AMThe Arizona Republic

As much as the state's behavioral-health system has suffered cutbacks over the past year, it's about to suffer more.

Agencies that treat Arizona's mentally ill and provide substance-abuse treatment face a double whammy. The state's Medicaid program soon will again reduce the amount it pays for services. And a 30-year-old class-action lawsuit that ensured state-funded treatment for the seriously mentally ill may be nearing its demise.

The latest round of payment reductions, spurred by a need to balance the state budget, has forced care providers to lay off hundreds of mental-health workers statewide. Hundreds more layoffs are expected in the months ahead.

"I don't know how many people are going to lose their jobs," said Richard Clarke, CEO of Magellan Health Services of Arizona, a for-profit company that contracts with the state to oversee behavioral-health care in Maricopa County.

Agencies that serve the mentally ill worry that the funding cuts could make it harder for patients to get care, as layoffs increase wait times and overload case managers, counselors and other treatment providers.

State lawmakers last year already eliminated a wide range of services for about 12,000 people with serious mental illness who don't qualify for Medicaid. Hundreds of caseworkers were laid off as a result.

Clarke expects a $90 million cut for Maricopa County behavioral-health agencies, including $12.5 million from Magellan's administrative budget.

The Connecticut-based company is paid about $500 million a year to oversee mental-health and substance-abuse services for nearly 72,000 mentally ill children and adults in Maricopa County. Its new state contract reduces the profit Magellan can make to 3 percent from 4 percent.

Layoffs at Magellan are expected in mid-October and already have occurred at other regional health providers across the state.

"Our goal all along has been to keep the system stable," said Andrea Smiley, chief community-relations officer for Magellan. "But with this much reduction in funding, (patients) are probably going to notice a difference."

Budget cuts

State lawmakers and Gov. Jan Brewer cut $500 million from the Arizona Health Care Cost Containment System to help balance the current-year budget, including a 5 percent rate reduction for health-care providers, effective Oct. 1. That rate cut followed a 5 percent cut in April, which means private-sector companies that provide therapy, medical care, hospitalization and other services to people in the public-health system will be paid 10 percent less than last year.

The AHCCCS cuts included an enrollment freeze in the program covering childless adults, which took effect July 8 but is being challenged in court. The enrollment cap means no new people can become eligible and those who drop off can't get back on.

Of the estimated 110,000 childless adults expected to lose their health-care coverage in the coming year, an estimated 35,000 are being treated for mental illnesses, including depression and anxiety or drug and alcohol abuse.

Magellan expects about two-thirds of those people will fall off the rolls in Maricopa County, leading to layoffs throughout the county's behavioral-health-provider system.

How those cuts and layoffs will affect Arizonans in need remains uncertain. Providers are under contract to offer the same services, regardless of how much they are being paid.

But they said staff reductions could mean longer waits for patients and fewer treatment providers from which to choose. The pay cuts could force some providers to leave the public-health system altogether.

Widespread layoffs

Health-care industry lobbyists warned lawmakers last session that the rate reductions, which will save $95 million this year, would drain jobs from the state amid the struggling economy.

Some behavioral-health agencies, such as La Frontera and La Paloma in Tucson, are merging. Mental-health advocates said smaller companies and group homes are teetering on the brink of collapse. In addition to layoffs, agencies are cutting pay and reducing hours to try to stay afloat.

In response to a survey by the Arizona Council of Human Services Providers, behavioral-health agencies say they have lost 1,856 jobs since January 2011, including layoffs and unfilled positions. Those 60 providers represent roughly 11,600 jobs. Jeff Jorde, CEO of Southwest Behavioral Health, said he laid off 40 people earlier this year and is unsure how many more he will have to let go among 900 employees statewide.

Neal Cash, CEO of the Community Partnership of Southern Arizona, the behavioral-health administrator for Pima County, said earlier this year that he reduced his staff by 50 people, about 20 percent.

Cash said the lower reimbursement rates and cuts to AHCCCS and non-Medicaid populations don't change the number of people who need help.

"The demand doesn't go away," he said. "They're not going to be enrolled, and they're not going to be eligible for services. But they're going to be out there. They're still going to have the same kinds of needs."

Lawsuit on hold

While providers struggle with rate cuts, thousands of seriously mentally ill Arizonans are coping with the loss of a wide array of services, including case management, brand-name prescription drugs, therapy, transportation and hospital benefits. All but generic medication and crisis services were cut last year to about 12,000 people ineligible for Medicaid to help balance a $1 billion state budget deficit.

That could not have happened, however, without a stay in the lawsuit that effectively created Arizona's system of care for the seriously mentally ill.

Attorney Chick Arnold, who filed the lawsuit in 1981, said he believes its days are numbered.

Arnold's lawsuit sought to enforce a state law that requires the state to provide services to all Arizonans with a serious mental illness, regardless of their income. The law was an outgrowth of the deinstitutionalization of the 1970s, which saw the advent of more effective medication and the release of mentally ill patients from institutional care.

As the Maricopa County public fiduciary at the time, Arnold was responsible for dozens of mentally ill. His lawsuit, on behalf of a schizophrenic man named John Goss, resulted in an agreement that created a system of care including housing, medication and case management for Maricopa County's seriously mentally ill.

It also included a court monitor to oversee the system and report annually to a judge on its progress and failures. Although the lawsuit applied only to the county, it has been the standard of care for the rest of the state.

State funding for the seriously mentally ill soared over the next two decades, as did the number of people receiving services.

But a year after taking office, faced with a brutal recession, Brewer called for its repeal as part of her budget-balancing plan.

Instead, lawyers representing the seriously mentally ill and the state agreed to a two-year stay in March 2010, which temporarily set aside the lawsuit and set the stage for what could be the end of the case that has sought to protect the rights of the mentally ill for three decades.

The stay allowed lawmakers and Brewer to cut services for people who earned too much, typically through disability payments, to qualify for AHCCCS.

Under the two-year stay, which expires June 30, the state and mental-health advocates are required to renegotiate the settlement terms, mindful of state funding limitations and with an emphasis on how people are doing - such as employment, social integration and staying out of jail - rather than the type or extent of care they are getting.

After more than a year with little activity, Superior Court Judge Rosa Mroz ordered the parties to issue a joint status report in July. The state's draft proposal recommended the status quo, with the state lawmakers funding services for those ineligible for Medicaid as they see fit. Negotiations continue.